Hudson's Detroit hasn't yet lured new office users to the city

At what will be the region’s most prized office address, there have been no takers so far other than some familiar faces.

Dan Gilbert’s $1.4 billion trophy Hudson’s Detroit development has not yet lured any new office users to the city.

The project has attracted new retail (Alo Yoga and Tecovas) and hospitality (a swanky new Edition hotel and new event space called The Department at Hudson’s). Bedrock predicts the overall retail, food and beverage, event and hospitality components of Hudson’s Detroit will create 400 jobs.

As the project secured multiple approvals for more than $250 million in taxpayer subsidies, the Hudson’s development was supposed to “directly create or support” about 1,633 new full-time permanent jobs in Detroit, per the terms of a Transformational Brownfield Program public funding agreement struck with the city and state in 2018. That jobs number has yet to be realized, and to date, the project hasn’t attracted new office workers with their higher salaries to the city.

Of the known tenants that will occupy the majority — about 232,000 square feet or more that Crain’s has accounted for so far — of the 404,000 square feet of Hudson’s office space, all three were already in the city. Bedrock representatives have said recently that space is 93% leased, although publicly identified tenants only account for perhaps 59% of that. The remaining tenants are not known.

General Motors Co. plans to occupy about 200,000 square feet for its new headquarters, the Ven Johnson Law PLC law firm will take about 22,000 and Accenture will take an estimated 10,000-15,000 square feet. GM is vacating the Renaissance Center, while Ven Johnson Law is leaving the Gilbert-owned Buhl Building and Accenture is departing from 1001 Woodward, also owned by Gilbert.

Still, it was not easy to pull off what Bedrock did, said Peter McGrath, managing director in the Detroit office of London-based brokerage house Savills plc.

“First and foremost, I would categorize the Hudson building as a resounding success,” McGrath said. “For a building to come out of the ground on spec in downtown Detroit, double the market’s rents, and be 93% pre-leased is no small feat. This is an example of flight-to-quality that will be used as a case study in university real estate courses for years to come.”

Commercial real estate experts, speaking on the condition of anonymity, noted that those three companies could have chosen locations outside of Detroit but instead remained within city limits.

The project was expected to benefit under the TBP incentives on some $192.8 million in subsidies alone ($118,071 per new permanent FTE job) across a wide variety of tax captures, primarily from the state.

The shift away from office space — and a change in how tax incentives would work for the project — were part of the Hudson’s project’s long gestation.

In 2023, the state amended the TBP in the wake of the COVID-19 pandemic that upended office markets worldwide, Jared Fleisher, the new president (and incoming CEO) of Gilbert’s Bedrock LLC real estate company, noted in an Aug. 4 statement.

“Office projections made for Hudson’s Detroit in 2017 cannot be the standard for today when, in fact, not only has the world changed — but so have the methods and goals of the TBP program. I continue to believe that the economic benefits of Hudson’s Detroit dwarf the TBP incentives,” Bedrock CEO Kofi Bonner said in a separate statement to Crain’s.

The program now allows for the capture of sales tax on things like retail purchases instead of income taxes on office workers, a reflection of how dramatically things have shifted in less than a decade.

“The office market has changed significantly since Hudson’s was conceived — but so has the TBP program,” Fleisher’s statement said, in part. “What has not changed is that Hudson’s Detroit is a catalytic project that will bring generational economic and fiscal benefits to our entire community.”

The nearby Book Tower, also part of Bedrock’s TBP, has created nearly 150 jobs in retail, food and beverage, and event and hospitality sectors as well, according to Bedrock.

Some critics of public financing for private development say this is another example of broken developer promises coming at the expense of taxpayers.

“In the real world where there are actual consequences for this kind of thing, the Hudson’s building Transformational Brownfield Plan would be the kind of ‘forward-looking statement’ that would have SEC investigators sharpening their knives and shareholder attorneys pricing out Lamborghinis,” said John Mozena, a critic of public subsidies who is president of libertarian-leaning think tank The Center for Economic Accountability “Meanwhile, our economic development bureaucrats just start negotiating the next deal with pretty much the same people.”

Indeed, said Brian Connolly, a University of Michigan professor and former real estate attorney in Denver, the public incentives cost per job is steep. But the word “support” does a huge lift, legally, when considering the TBP incentive language saying the project would “directly create or support” those jobs.

Is there a world in which GM would have left the RenCen entirely for its tech center in Warren were it not for the pending opening of the Hudson’s office space, Connolly wondered.

“Having done some of this work in other parts of the country, when you’re applying for those (public subsidies), there is kind of a forecasting and predictive aspect of it that is, at best, imprecise, and you’re having to justify getting that public assistance by kind of trying to prove things that you don’t know whether they will prevail or not,” Connolly said.

While filling the gaping maw that was the old J.L. Hudson’s department store site with a sleek new mixed-use development that includes a skyscraper signals progress for Detroit, the city generally still has had trouble landing major established office users that hadn’t already had regional outposts in the suburbs.

The Googles and Fifth Third Banks and Microsofts and Coyote Logistics of the world moved to Detroit buildings from elsewhere in the region, like Southfield and Ann Arbor, although a new Boston Consulting Group office did open a few years back.

But it’s not just Detroit, McGrath said.

“The state has had a harder time attracting more large-scale office users in the professional services industries, such as finance, advertising, and tech, partially because these firms are still consolidating and cutting back on office footprints everywhere,” McGrath said.

“The Hudson tower and downtown Detroit’s challenges luring new tenants to the region reflect market conditions statewide more than anything else.”